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Catastrophic Budget Failure

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  • Burman, Leonard E.
  • Rohaly, Jeffrey
  • Rosenberg, Joseph
  • Lim, Katherine C.

Abstract

Continuation of current U.S. fiscal policy will lead to an enormous accumulation of debt with potentially disastrous economic consequences. Exacerbated by the recent economic turmoil and fueled by the willingness of creditors to lend at very low interest rates, there is significant risk that necessary fiscal reform will be put off. In this paper, we consider the causes, mechanisms, and macroeconomic fallout of a catastrophic budget failure — a situation in which markets’ perception of the credit worthiness of the U.S. government rapidly deteriorates, leaving it unable to access credit markets at any reasonable rate of interest and generating a high probability of the previously unthinkable: the U.S. government defaulting on its debt obligations.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 63 (2010)
Issue (Month): 3 (September)
Pages: 561-83

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Handle: RePEc:ntj:journl:v:63:y:2010:i:3:p:561-83

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Cited by:
  1. Zodrow, George R. & Diamond, John W., 2013. "Dynamic Overlapping Generations Computable General Equilibrium Models and the Analysis of Tax Policy: The Diamond–Zodrow Model," Handbook of Computable General Equilibrium Modeling, Elsevier.
  2. Leonard E. Burman & Marvin Phaup, 2011. "Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform," NBER Working Papers 17268, National Bureau of Economic Research, Inc.

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